Order in the matter of LGS Global Limited

8/21/2019 Order in the matter of LGS Global Limited

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__________________________________________________________________________ Order in the matter of LGS Global Limited Page 1 of 19

WTM/RKA/EFD/DRA II/ 53 /2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

Under section 11B read with section 11(4) of the Securities and Exchange Board of India

Act, 1992 in respect of:

Sl. No. Name of the Entity PAN

1. Mr. Bhavesh Pabari AKGPP8679N

2. Mr. Bipin Jayant Thaker ABYPT4984H

3. Mr. Kishore Chauhan AFPPC9703G

4. Mr. Prem Mohanlal Parikh ALHPP3489N

5. Mr. Hemant Madhusudan Seth ANOPS8607E

6. Ms. Mala Hemant Seth AZXPS0694J

7. Mr. Ankit Sanchaniya BLNPS3316L

8. Mr. Bharat Shantilal Thakkar AAZPT9542R

In the matter of dealings in the shares of LGS Global Limited

Appearances:

Mr. Bhavesh Pabari – in Person.

_________________________________________________________________________

1. LGS Global Limited (hereinafter referred to as "LGS") is a company listed on Bombay

Stock Exchange Limited ("BSE"). Securities and Exchange Board of India ("SEBI"')

initiated investigation into the trading in certain scrips including LGS pursuant to

detection of a huge rise in the traded volumes and/or price of the shares of these

companies during the years 2008, 2009 and 2010.

2. Upon analysis of the trading activity in the scrips, it was prima facie observed that certain

entities had indulged in creating artificial volume by trading in a synchronized manner

carrying out off-market transfers among themselves for the purpose of meeting settlement

obligations of another and thus contributing to the price rise in these scrips.

3. In view of the above, in order to protect the interests of investors and to preserve the

safety and integrity of the market, SEBI passed an interim order dated February 02, 2011

(“interim order ”) restraining 39 persons/entities including Mr. Bhavesh Pabari, Mr. Bipin

Jayant Thaker, Mr. Kishore Chauhan, Mr. Prem Mohanlal Parikh, Mr. Hemant

Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya and Mr. Bharat Shantilal

Thakkar from accessing the securities market, and further prohibited them from buying,


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selling or dealing in securities in any manner whatsoever, till further directions. The said

interim order was later confirmed by SEBI vide order dated July 08, 2011(‘confirmatory order ’).

4. SEBI initiated an investigation relating to buying, selling or dealing in the shares of the

scrip of LGS to inter alia ascertain the violation of the provisions of the Securities andExchange Board of India Act, 1992 ("SEBI Act") and the Rules and Regulations made

thereunder. The period of investigation was taken as February 10, 2009 to May 07, 2010

(hereinafter referred to as "investigation period"). Investigation inter alia revealed that

i. Certain connected/related entities had traded significantly in the scrip of LGS

during 2008, 2009 and 2010. The relationship/connection between the entities was

determined based on at least one of the following parameters:

(a) Similarities in the particulars/details in the KYC documents such as common

telephone number, addresses, e-mail addresses, etc.(b) Trading activity in terms of buy/sell among the group and the frequency and

off-market transfers between them

(c) Fund transfers between the members of the group.

ii. On the basis of the said criteria, one group was identified as the "Pabari-Parikh"

group ("PP group"). The members of the PP group and the basis of

relationship/connection amongst them are as follows:

Table 1: Relationship among the PP group entities

Sl.No.

Client Name KYC Relation FundMovement

Share movementthrough offmarkettransaction

1. BhupeshRathod

Introduced entities at sl.nos. 11, 10, 9, 7 for tradinga/c and knows sl. No. 14.

With entityat sl. No. 16.

-

2. Ketan BabulalShah

- - With entity at sl.no.10.

3. Bharat Shantilal Thakkar

Entity at sl. no. 9 is hisnephew.Same address with sl. no.9.Entity at sl. no. 9 is hisnominee.

Joint a/c with entity at sl.no. 9.Business relations withentities at sl. nos. 4, 6, 7,10, 11, 16, 17.

With entitiesat sl. nos. 9,10, 16.

With entity at sl.no. 9.

4. Bipin Jayant Same Tel. no. with entity at With entity With entities at sl.


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Thaker sl. no. 9.Business relations withentities at sl. nos. 3, 6, 7, 9,10, 11, 16, 17.

at sl. no. 9. nos. 12, 6, 9, 10,11.

5. Bharat G

Vaghela

Same address & Tel. no. as

entity at sl. no. 8 who hasshare movement withentity at Sl. no. 9.Entity at sl. No. 6 isnephew of entity at sl. no.9 and shares same Tel. no.

with entity at sl. no. 9.

With entity

at sl. no. 6.

-

6. Chirag Rajnikant Jariwala

Same Tel. no. with entity atsl.no.9.Entity at sl. no. 9 is his

uncle.Business relations withentities at sl. nos. 3, 4, 7, 9,11, 16, 17.


With entity at sl.no. 4.

7. KishoreChauhan

Joint a/c with entity at sl.no. 9.Entities at Sl. nos. 9 & 11are witness for demat a/c.Business relations withentities at sl. nos. 3, 4, 6, 9,10, 11, 16.


With entities at sl.nos. 9, 10, 11, 17.

8.

BipinkumarGandhi

- - With entity at sl.no. 9.

9. Bhavesh Pabari Entity at sl. no. 3 is hisuncle & entity at sl. no. 17is his brother in law.Entity at sl. no. 10 iscousin of entity at sl. no. 9.Entities at sl. nos. 9 & 11both directors of Rajnandi

Yarns Pvt. Ltd.

Share common Tel. no. with entities at sl. nos. 16,17, 4.Entity at sl. no. 1introduced him for tradinga/c.Business relations withentities at sl. nos. 4, 6, 7,10, 11, 14, 16.

- With entities at sl.nos. 10, 11, 3, 4,16, 17, 8.

10. Prem MohanlalParikh

Entity at sl. no. 10 iscousin of entity at sl. no.9.

Common email withentities at sl. 16, 10 & 17.

With entitiesat sl. nos. 9,

11, 7.

With entities at sl.nos. 9, 11, 7, 3, 4,

12, 16, 17.


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Entity at sl. no. 11 isnominee of entity at sl.no.10.Business relations withentities at sl. nos. 3, 4, 6, 7,

9, 11, 16, 17.11. Hemant

MadhusudanSheth

Entities at Sl. nos. 9 & 11both directors of Rajnandi

Yarns Pvt. Ltd.Same email with entity atsl. no. 17.Business relations withentities at 1, 3, 10, 16, 17,4, 6, 7 & sl. no. 14 is his

wife & sl. no. 15 is hisnephew.


With entities at sl.nos. 9, 10, 7, 14,16, 17, 12, 4.

12.

Jigar PrafulGhoghari

- - With entities at sl.nos. 4, 10, 11, 16.

13. Vipul HiralalShah

- WithKaushikRajnikantMehta whohas off-markettransaction

with entity

at sl. No. 9.

With entity at sl.no.9.

14. Mala HemantSheth

Entity at sl. no. 14 is the wife of entity at sl. no. 11and entity at sl. no. 15 isthe nephew.

With entitiesat sl. nos. 9,10.

With entity at sl.no. 11,

15. Gaurang AjitSeth

Has common address & Tel. no. with entity at sl.no. 11 & entities at sl. no.11 and 9 both directors ofRajnandi Yarns Pvt. Ltd.

- -

16.

AnkitSanchaniya

Same Tel. no. with entity atsl. no. 10 and also shares

Tel. no. with entity at sl.no. 9 who is the nomineefor his a/c.Business relations withentities at sl. nos.3, 4, 6, 7,9, 10, 11, 17.

With entitiesat sl. nos. 9,10.

With entities at sl.nos. 9, 10, 11, 6,12, 17.

17. Vivek KishanpalSamant

Entity at sl. no. 9 is thebrother in law & sharescommon Tel. no. & entity

at sl.no. 9 is the nomineeof sl. no. 17 for trading a/c

With entityat sl. no. 11.

With entities at sl.nos. 9, 11, 6, 7, 10,16.


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& bank a/c.Shares email with entity atsl. no. 11.Shares email with entity atsl. no. 10.

iii. On BSE, the PP group entities including the above mentioned 8 entities i.e. Mr.

Bhavesh Pabari, Mr. Bipin Jayant Thaker, Mr. Kishore Chauhan, Mr. Prem Mohanlal

Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya

and Mr. Bharat Shantilal Thakkar traded in 71,94,984 shares constituting 35.37% of the

total market volume in the scrip traded during the period under investigation.

iv. Several of the trades were synchronised amongst above mentioned 8 entities in the

scrip of LGS during the investigation period. It was also observed that out of the total

trading of 71,94,984 shares within these entities, the buy and sell orders with respect to

33,92,951 shares accounting for 16.68% of the market volume were placed within a

span of one minute. These 33,92,951 shares constituted 33.13% of the total purchases

and 38.45% of the total sales of the above mentioned 8 entities. Out of these 33,92,951

shares, the buy and sell orders with respect to 5,98,895 shares accounting for 2.94% of

the total market volume, were placed in such a manner that the difference between

placement of orders by buyer and seller was within one minute with the order rate as

well as order quantity of buy side and sell side was the same. These 5,98,895 shares

constitute 5.85% of the total purchases and 6.79% of the total sales of the above

mentioned 8 entities. v. It was further observed that the PP group entities also indulged in self trades on the

BSE (i.e. buy client as well as the 8sell client for a given trade was the same resulting in

no change of beneficial ownership). In all these self trades mentioned above, the buy

and sell stock brokers were also same.

vi. The price volume data analysis revealed that the shares of LGS were traded for 301

trading days during the investigation period on BSE. Out of 301 trading days, the PP

group entities, including the above-mentioned 8 entities, traded among themselves on

145 days. It was observed that the volume of trades undertaken by the PP group

entities contributed significantly to the daily market volume in the scrip on BSE during

the investigation period ranging from 0.90% on March 08, 2010 to 95.07% on April

09, 2010. Out of 145 trading days on which the PP group entities traded among

themselves, on 68 trading days the trades executed by the PP group entities

contributed to more than 50% of the total market volume in the scrip.

vii. Further, it was observed that out of 145 trading days in which the PP group entities

traded amongst themselves, on 125 trading days the PP group entities, the above-

mentioned 8 entities executed synchronised trades i.e. trades in which both buy and

sell orders were placed within a time difference of one minute. It was observed that thesynchronised trades executed by PP group entities, including the 8 above-mentioned


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entities, contributed significantly to the daily market volume, ranging from 0.30% on

August 31, 2009 to 88.88% on February 15, 2010. Out of 125 trading days, on 11

trading days PP group entities, including the 8 above-mentioned entities, contributed

to more than 50% of the total market volume through synchronised trades.

viii.

Out of 58,054 trades during the investigation period, the PP group entities, includingthe above-mentioned 8 entities, entered into 12,901 buy transactions. Further, it was

observed that out of 12,901 trades 3,157 trades took place at a price less than LTP

(contributing a gross fall in price by ₹ 1008.80), 5,894 trades took place at a price equal

to LTP and 3,850 trades at a price greater than LTP (contributing a gross increasing in

price by ₹ 1630.25).

ix. It was observed that during the period under investigation, the price of the scrip of

LGS opened at ₹25.75 and touched a high of ₹ 139.40, i.e. an increase of ₹ 113.65 in a

span of less than 3 months.

5. The afore discussed actions on part of the above mentioned 8 entities i.e. execution of

synchronized and self trades, creation of artificial volume and price manipulation distorted

the market equilibrium and were also found to be fraudulent in nature. Consequently, a

Show Cause Notice dated September 30, 2014 was issued to the above mentioned 8

entities (hereinafter collectively referred to as "the Noticees") calling upon them to show

cause as to why suitable directions under section 11B read with section 11(4) of the SEBI

Act should not be issued against them for the alleged violation of the provisions of

regulations 3 (a), (b), (c), (d), 4(1), 4(2) (a),(b) (e) and (g) of the SEBI (Prohibition ofFraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003

("PFUTP Regulations"). The provisions of the Regulations alleged to have been

contravened by the Noticees are reproduced hereunder:

Regulation 3. Prohibition of certain dealings in securities

“3. No person shall directly or indirectly

(a). buy, sell or otherwise deal in securities in a fraudulent manner;

(b). use or employ, in connection with issue, purchase or sale of any security listed or proposed to belisted in a recognized stock exchange, any manipulative or deceptive device or contrivance in

contravention of the provisions of the Act or the rules or the regulations made there under;

(c). employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities

which are listed or proposed to be listed on a recognized stock exchange;

(d). engage in any act, practice, course of business which operates or would operate as fraud or deceit

upon any person in connection with any dealing in or issue of securities which are listed or proposed to

be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and

the regulations made there under.


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Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices

4. (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or

an unfair trade practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely: —

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate

only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or

avoidance of loss;

(c) ................................................................................................

(d) ...............................................................................................

(e) any act or omission amounting to manipulation of the price of a security;

(f) ................................................................................................

(g) entering into a transaction in securities without intention of performing it or without intention of

change of ownership of such security;”

6. Vide separate letters dated October 15, 2014, Mr. Bhavesh Pabari and Mr. Bharat Shantilal

Thakkar sought copies of certain documents which were provided to them vide letters

dated December 15, 2014. Vide separate letters dated October 17, 2014, Mr. Bipin Jayant

Thaker, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth and Mr. Ankit Sanchaniya

sought copies of certain documents which were provided to them vide letters datedDecember 15, 2014. Vide letter dated October 18, 2014, Mr. Prem Mohanlal Parikh sought

copies of certain documents which were provided to him vide letter dated December 15,

2014.

7. All the Noticees except Mr. Kishore Chauhan and Mr. Ankit Sanchaniya filed their replies

to the SCN vide separate letters. As regards, Mr. Kishore Chauhan, it has been brought to

my notice that during the adjudication proceedings in the same matter, one Ms. Rupal K.

Chauhan, claiming to be wife of Mr. Kishore Chauhan, has informed SEBI that Mr.

Kishore Chauhan had passed away on May 29, 2013 and had enclosed a certified copy ofthe death certificate as issued by the Department of Health and Family Welfare,

Government of Gujarat, in support thereof. The replies of the Noticees are summarized as

under:

i. Mr. Bhavesh Pabari vide his letter dated February 17, 2015 submitted the following:

That he had requested a copy of all the material / documents relied upon by SEBI

in the matter such as a copy of the complains, copy of KYC forms, details of

alleged fund transfers, details of trades executed by him, copies of trade logs, order

logs etc. but he was not provided with the same.


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He sought an opportunity to cross-examine any person whose statement has been

relied upon by SEBI.

Since proceedings were issued against him by the Adjudicating Officer and a Show

Cause Notice was issued to him therein, he had already submitted his reply before

the Adjudicating Officer.

Hard copies of trade logs and Order logs were provided in CD format and there

was difficulty to purify the data which was in whole. The action proposed report

was not enclosed with the documents provided.

There is no denial that he was not a director in Rajnandi Yarns Private Limited but

the decision of investment of Rajnandi Yarns Private Limited was taken in

company board meeting and not at an individual level.

He does not have any business relationship with other Noticees involved.

The documents furnished have failed to provide any documentary evidence to

prove the relationship.

A penalty of ₹ 5,00,000/- was imposed on the Noticee by the Adjudicating Officer

which has been appealed against in SAT and the Noticee is aggrieved by the

Interim Order and the Confirmatory order passed against him making him unable

to have any financial means and capacity to take service of legal consultation and

represent his case in the present proceedings.

It is alleged in the SCN that he and Mr. Bharat Thakkar shared common address.

But on a perusal of the KYC is may be noticed that the address of Mr. Bharat Thakkar is on the 3rd floor flat no. 32 and that of the noticee is 1st floor flat no. 6.

ii. Mr. Bipin Jayant Thaker vide letter dated February 18, 2015 submitted the following:




The action proposed report was not enclosed with the documents provided.

A penalty of ₹ 5,00,000/- was imposed on him by the Adjudicating Officer which

has been appealed against in SAT and he is aggrieved by the Interim Order and the

Confirmatory order passed against him making him unable to have any financial

means and capacity to take service of legal consultation and represent his case in

the present proceedings.

In the SCN it has been stated that Mr. Chirag Jariwala introduced him to Arcadia

Shares and Stock Brokers Ltd. However, from the KYC it is seen that he is not the

introducer but the witness to the said form.

iii.

Mr. Prem Mohanlal Parikh vide letter dated February 17, 2015 submitted thefollowing:


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iv. Mr. Hemant Madhusudan Seth vide letter dated February 18, 2015 submitted the

following:

Since proceedings were issued against him by the Adjudicating Officer and a ShowCause Notice was issued to him therein, he had already submitted his reply before





Though he has not denied that he was not a director in Rajnandi Yarns Private

Limited, but the decision of investment of Rajnandi Yarns Private Limited, was

taken in company board meeting ant not at an individual level.

The documents furnished have failed to provide any documentary evidence to

prove the relationship.






v.

Ms. Mala Hemant Seth vide letter dated January 31, 2015 submitted the following: Since proceedings were issued against her by the Adjudicating Officer and a Show

Cause Notice was issued to her therein, she had already submitted her reply before





Though she had fund movement with some other entities of the PP group she did

not form a part of the said group.


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She has no business relationship with other Noticees and documents furnished

along with the SCN have failed to provide any documentary evidence to prove the

relationship.

While it is true that she is the wife of Mr. Hemant Madhusudan Seth, she did not

have any business/ professional connection with him and she is living an

independent life and is taking her own independent decisions.

A penalty of ₹ 5,00,000/- was imposed on her by the Adjudicating Officer which

has been appealed against in SAT and she is aggrieved by the Interim Order and

the Confirmatory order passed against her making her unable to have any financial



vi.

Mr. Bharat Shantilal Thakkar vide letter dated February 18, 2015 submitted thefollowing:










It is alleged in the SCN that Mr. Bavesh Pabari and Mr. Bharat Shantilal Thakkar

shared common address. But on a perusal of the KYC is may be noticed that his

address is on the 3rd floor flat no. 32 and that of Mr. Bhavesh Pabari is 1st floor flat

no. 6.

8. In addition to the aforesaid submissions, the Noticees have made a common submission

that their Memoranda of Appeal filed before Securities Appellate Tribunal may also betaken on record and the submissions made therein shall also be considered as their

submissions in response to the SCN in the present proceedings. I note that the Noticees

have inter alia made the following common submissions in their respective appeal

memorandum:

a) The Adjudicating Officer's order is based on a totally erroneous and untenable

assumptions and interpretation of the law and in violation of basic principles of natural

justice.


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b) All documents which were relied upon in the show cause notice issued by the

Adjudicating Officer was not provided to them

c) No relationship between the Noticees m and the remaining entities of the PP group has

been established.

d)

The trades executed by the Noticees were genuine and bona fide and they receivedconsideration of the same.

e) Their quantities of the shares purchased and sold by the Noticees were miniscule and

therefore the same could not have had any impact on the creation of artificial volume

and price manipulation in the scrip of LGS.

9. An opportunity of personal hearing was granted to the Noticees on February 26, 2015.

None of the Noticees appeared for the hearing except Mr. Bhavesh Pabari who appeared

and made his submissions in line with his reply. Since the hearing notice issued to Mr.

Ankit Sanchaniya was returned undelivered, a second opportunity of hearing was granted

to him on May 05, 2015. However, he did not appear for the hearing.

10. I have considered the allegations levelled against the Noticees in the SCN, replies made by

the Noticees in response thereto and other material on record. At the outset, I find that in

the present proceedings, the principles of natural justice have been duly followed as all the

Noticees were given an opportunity to file their replies/written submissions and also with

opportunities of hearing. The Noticees (who did not appear for the hearing) have

mentioned in their replies that they are not in a position to attend personal hearing andpresent their case before me. Further the SCN does not rely upon the statement of any

person for the purpose of the allegations levelled against the Noticees therein. Therefore

the question of providing an opportunity to cross-examine any person whose statement

has been relied upon, does not arise. I now proceed to deal with the present proceedings

on merit on the basis of the replies/written submissions of the Noticees on record.

11. The Noticees have made a common submission that the action proposed chart had not

been provided to them and that the trade logs and order logs were provided in a CD

format due to which the Noticees were unable to purify the data pertaining to them. I haveperused the documents sought by the entities and the documents furnished to them. I note

that all such relevant documents that were relied upon in the Show Cause Notice have

been duly provided to the Noticees. Further, due to the voluminous nature of the trade

logs and order logs, the same were given through a compact disc. I, therefore, am of the

view that the relevant documents/material which was relied upon in the SCN in the

present proceedings has been provided to the Noticees. In view thereof, I reject the

submissions of the Noticees in this regard.

12.

Mr. Bhavesh Pabari and Mr. Hemant Madhusudan Seth have contended that though they


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were directors in Rajnandi Yarns Private Limited, the decision regarding investment of

Rajnandi Yarns Private Limited was taken in company's board meeting and not at an

individual level. In this regard I note that several off market transactions have been entered

into between the PP group entities including the Noticees and Rajnandi Yarns Private

Limited the details of which are as under:

Table 2 - Fund movement with Raj Nandi Yarns Private Limited

Date Client Name Counterparty Client Name TotalQuantity

10/02/2010 Chirag Jariwala Raj Nandi Yarns PrivateLimited

25000

15/02/2010 Kishore Chauhan Raj Nandi Yarns PrivateLimited

195000

18/08/2010 Bharat Shnatilal Thakkar Raj Nandi Yarns PrivateLimited

25000

13. It is noted that Mr. Bhavesh Pabari is the nephew of Mr. Bharat Shantilal Thakkar with

whom Rajnadi Yarns Ltd. has fund movements. Moreover, Mr. Bhavesh Pabari and Mr.

Bharat Shantilal Thakkar also have fund movements among themselves. It is also noted

that Mr. Chirag Jariwala is the nephew of Mr. Bhavesh Pabari and has fund movements

with him. Even Mr. Kishore Chauhan had fund movement with Mr. Bhavesh Pabari.

Further, as shown in Table 1 above, Mr. Hemant Madhusudan Seth was connected to Mr.

Bhavesh Pabari and other PP group entities through fund movements, of market transfer

of shares and other factors. Therefore, the contention of Mr. Bhavesh Pabari and Mr.

Hemant Madhusudan Seth that they had no role in the investment decisions of Rajnandi

Yarns Private Limited cannot be accepted.

14. Another Noticee, Ms. Mala Hemant Seth has accepted fund movement with certain

Noticees. She has further stated that while it is true that she is the wife of Mr. Hemant

Madhusudan Seth, she denies having any business/ professional connection with him and

submits that she is living an independent life and is taking her own independent decisions.

I note that Ms. Mala Hemant Seth also has fund movements and off market transactions with Mr. Bhavesh Pabari and Mr. Prem Mohanlal Parikh. Vide her letter dated July 8,

2012; a copy of which has been provided to her, it has been admitted by Ms. Mala Hemant

Seth that the transaction in the securities market in her name were handled by her husband

Mr. Hemant Madhusudan Seth. I, therefore, do not find any merit in her submission noted

above.

15. With respect to the submissions made by Mr. Bipin Jayant Thaker, I note that vide letter

dated July 11, 2012 submitted by the Mr. Bipin Jayant Thaker to SEBI, he has accepted

that Mr. Bhavesh Pabari was his nephew.


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16. I note that the details of the relationship amongst the Noticees, their trade logs and their

off market transactions have been sufficiently detailed and were also furnished to the

Noticees along with the SCN. Such relations and transactions have not been disputed.

17.

Further, Mr. Bhavesh Pabari has submitted that he and Mr. Bharat Shantilal Thakkar donot share a common address since their flat numbers are different. In this regard, I note

that as per their own admission, they live in the same building but on different floors.(i.e.

1st and 3rd ). Also it is not disputed that Mr. Bhavesh Pabari is the nephew of Mr. Bharat

Shantilal Thakkar. Thus, even if the technical argument is accepted that they were residing

on different floors of the same building, the connection between them shown in the SCN

cannot be disputed.

18. The Noticees have made a common contention that they were not related to each other.

In this regard, I note that the relationship / connection among the PP group entities as

illustrated in the SCN has been established on the basis of a multiplicity of factors

including family relationship, common address, bank account details, fund movements

share transfers in off-market etc. Other than a general denial, the Noticees have not

produced any satisfactory material/documents to dispute the inferences regarding their

inter-se relationship brought out in SCN. In my view, it cannot be a mere coincidence that

the Noticees while trading in the scrip of LGS ended up trading amongst each other only

and collectively contributed to more than 50% of the total traded volume during the

investigation period. Further, the details of the synchronized and self trades among theNoticees were also provided to the Noticees in the SCN in response whereof they have

not provided any cogent explanation. In this regard, It is pertinent to note that the Hon'ble

SAT has, in many cases such as Classic Credit Ltd. vs. SEBI (SAT Appeal no. 68/2003, Order

dated December 8, 2006), Classic Credit Ltd. vs. SEBI ( SAT Appeal no. 76/ 2003, Order dated

January 9, 2007) and Veronica Financial Services Ltd. vs. SEBI ( SAT Order dated August 24,

2012), held that connection/relations can be established on the basis of such factors. In

view of the above, I reject the contention of the Noticees in this regard.

19.

The Noticees have raised another common contention that the transactions carried out by

them were genuine and bona fide and the quantities of their transactions were so minuscule

that they could not have led to creation of artificial volume and price manipulation in the

scrip of LGS. In this regard, I note that the SCN clearly brings out that there have been

number of transactions among the Noticees which were synchronized with the orders with

identical rates placed within a span of less than one minute. The particulars of the

synchronised trades carried out by the Noticees are as under:


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Table 3 - Synchronized trades by the Noticees.

Sl.No.

ClientName

Synchronisedbuy trade

% ofsynchronised

trades tototal buy byclient

% ofMarket

Volume

Synchronisedsell trade

% ofsynchronised

trades tototal sell byclient

% ofMarket

Volume

1. BharatShantilal

Thakkar

120195 10.21 0.59 77632 6.58 0.38

2. Bipin Jayant Thaker

49386 7.61 0.24 23177 4.12 0.11

3. Kishore

Chauhan

69500 7.44 0.34 54997 7.62 0.27

4. BhaveshPabari

28149 4.02 0.14 24734 3.60 0.12

5. PremMohanlalParikh

57062 6.34 0.28 73036 11.63 0.36

6. HemantMadhusudanSheth

108777 3.67 0.53 213521 8.22 1.05

7. MalaHemant

Sheth

0 0.00 0.00 8500 2.65 0.04

8. AnkitSanchaniya

28101 3.08 0.14 36150 4.13 0.18

20. Placing of the sell orders with same counterparties for same quantity of shares at the same

price within nil or negligible time difference repeatedly over a period of time is a clear

indication that those trades of the Noticees were synchronised/structured. In this regard,

the following observations of the Hon’ble SAT in its order dated July 14, 2006 in the

matter of Ketan Parekh vs. Securities and Exchange Board of India , are worth mentioning:

“.......... A synchronised transaction will, however, be illegal or violative of the Regulations if it is

executed with a view to manipulate the market or if it results in circular trading or is dubious in

nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial

ownership or is executed to create false volumes resulting in upsetting the market equilibrium. Any

transaction executed with the intention to defeat the market mechanism whether negotiated or not

would be illegal. Whether a transaction has been executed with the intention to manipulate the market

or defeat its mechanism will depend upon the intention of the parties which could be inferred from the

attending circumstances because direct evidence in such cases may not be available. The nature of the

transaction executed, the frequency with which such transactions are undertaken, the value of thetransactions, whether they involve circular trading and whether there is real change of beneficial


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ownership, the conditions then prevailing in the market are some of the factors which go to show the

intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one

factor may or may not be decisive and it is from the cumulative effect of these that an inference will have

to be drawn.”

21. I also note that the Noticees executed multiple self trades wherein one or the other

Noticee was on either side of the transaction thereby creating artificial volume in the scrip.

The details of the self trades executed by the Noticees are as below:

Table 4 - Self trades by the Noticees.

Sl. No. Client Name TotalBuy

TotalSale

Selftrade

qty

% of Total

Buy

% Tota

lSale

% ofMark

et Volume

No ofSelf

trades

1. Bharat Shantilal Thakkar

1176987 1179456 23264 1.98 1.97 0.11 22

2. Bipin Jayant Thaker

648777 562659 26898 4.15 4.78 0.13 26

3. Kishore Chauhan 934416 722216 1000 0.11 0.14 0.00 1

4. Bhavesh Pabari 700032 686402 28860 4.12 4.20 0.14 9

5.

Prem MohanlalParikh

900352 627742 79563 8.84 12.67 0.39 18

6. HemantMadhusudanSheth

2960225 2599035 484619 16.37 18.65 2.38 138

7. Mala HemantSheth

320268 320756 8725 2.72 2.72 0.04 2

8. Ankit Sanchaniya 912651 875458 43410 4.76 4.96 0.21 9

22. The above self-trades clearly did not involve change in beneficial ownership of traded

shares and were, therefore, illegal. It is relevant to mention that with regard to the nature

and effect of self-trades the Hon’ble SAT, in the matter of M/s. Jayantilal Khandwala & Sons

Pvt. Ltd. vs. SEBI (Appeal no. 24 of 2011 decided on June 8, 2011), has held that : “ one

cannot buy and sell shares from himself. Such transactions are obviously fictitious and meant only to create

false volumes on the trading screen of the exchange.”

23. It is also important to note that in all these self trades mentioned above, the buy and sell

stock brokers were also the same. The detail of the self trades undertaken by stock brokers

is placed below:


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Table 5 - Stock brokers through whom the Noticees executed self trades.

Buy and Sell StockBroker Name

Client Name Total TradedQty

No. of Trades

Arcadia Share & Stock

Brokers Pvt. Ltd.

Ankit Rajendra Sanchaniya 3762 2

Bharat Shantilal Thakkar 12154 19Bhavesh Pabari 110 2

Bipin Jayant Thaker 1499 2

Hemant Madhusudan Sheth 200 1

Kishore Chauhan 1000 1

Fairwealth Securities Pvt.Ltd.

Ankit Rajendra Sanchaniya 500 1

24. It is also noted that during the period under investigation, the price of the scrip of LGS

opened at ₹ 25.75 and touched a high of ₹ 139.40, i.e. an increase of ₹ 113.65. Further,

on 42 trading days and 380 occasions a new high price was discovered. Out of 380

occasions, on 162 occasions (on 19 days of 42 days), all of the Noticees except Mr. Prem

Mohanlal Parikh contributed to an increase in the price to ₹49.55 (out of ₹113.65).

25. In addition to the above, the PP group entities including the Noticees had indulged in

off-market transfer of 11,90,750 shares of LGS amongst themselves (during the period

January 01, 2009 and January 31, 2011) which further corroborated the connection among

them. The details of the off market transactions undertaken by the Noticees are as under:

Table 6- Off-market transactions by the Noticees.

Sr.No

Name No. ofsharestransferredto groupmembers

No. ofinstances

No ofsharesreceivedform groupmembers

No. ofinstances

1. Bharat Thakkar 2500 1 57144 42. Bipin Thaker 57601 3 0 03. Kishore

Chauhan

201000 2 0 0

4. Prem Parikh 19500 2 0 05. Hemant Seth 179100 5 40000 16. Ankit

Sanchanya28000 2 147601 3

7. Bhavesh Pabari 0 0 71600 4

26. This large scale trading amongst the PP group entities, which included the Noticees, all of

which were synchronized and did not result in change in ownership created an artificial

demand in the scrip of LGS and led to a price rise which was misleading and

disadvantageous to the genuine investors in the securities market.


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27. In view of the above, I find that the Noticees in the present proceedings were related /

connected to each other and connived amongst themselves for execution of synchronized

and self trades, creation of artificial volume and price manipulation which not only

distorted market equilibrium but were also found to be fraudulent in nature. The Noticees

have therefore violated the provisions of regulations 3 (a),(b),(c),(d), 4(1), 4(2) (a),(b) (e)and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to

Securities Market) Regulations, 2003.

28. The Noticees have submitted that based on the same set of facts and transactions as in the

instant case monetary penalties were imposed against the Noticees by the adjudicating officer

vide his separate order(s) and the Noticees have challenged the said order(s) before SAT.

However, I am satisfied that the contraventions as found in this case are grave and have the

potential to disturb the market integrity and disturb the fair, equitable and efficient

functioning of the securities market. In the instant case, the proceedings under sections 11

and 11B of the SEBI Act have been initiated against the Noticees in addition to the

adjudication proceedings against them as the charges against the entities are grave and have

larger implications on the safety and integrity of the securities market. In my view, for the

serious contraventions as found in the instant case, monetary penalty alone would not be

sufficient to safeguard the market integrity. In this regard, the following observations of the

Hon’ble SAT in the order dated December 02, 2010, in Appeal no. 70 of 2010 – Yashraj

Containeurs Ltd. v. SEBI are worth mentioning:

“.... we cannot resist observing that in view of the serious allegations made against the appellants which

stand established during the course of the adjudication proceedings, the Securities and Exchange Board of

India (for short the Board) should not have been content with initiating only adjudication proceedings

against the appellants in which only a monetary penalty could be levied. This is a fit case where the Board

should have considered initiating proceedings under Sections 11 and 11B of the Securities and Exchange

Board of India Act, 1992 for issuing appropriate directions against the appellants to protect the integrity

of the market and the interests of the investors....

This is, indeed a very serious market illegality/irregularity and, in our view, imposing a monetary penaltyalone on the company and its promoters will not meet the ends of justice. We are constrained to make

these observations because the lenient view taken by the Board does not, in our opinion, protect the

integrity of the market and not even the interest of the investors which is its primary duty. This kind of a

lenient view will not be a deterrent for others and would send a wrong signal that the delinquent could

continue with their nefarious activities by paying a monetary penalty.”

29. I note that vide the interim order dated February 02, 2011, SEBI had restrained, inter alia, the

Noticees herein from accessing the securities market and further prohibited them from

buying, selling or dealing in securities in any manner whatsoever, till further directions.


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The directions in the interim order qua these Noticees are still in force. I also note from the

material on record that Mr. Kishore Chauhan has passed away on May 29, 2013 and

therefore, these proceedings against him have abated and the SCN dated November 30,

2014 as against him is disposed off accordingly.

30. It is important to mention that the Noticees in the present proceedings, against whom the

allegations levelled in the SCN have been established, have already been restrained by

SEBI vide order dated May 13, 2015 (in the matter of dealings in the shares of Goldstone

Technologies Limited) from accessing the securities market and have been further

prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or

being associated with the securities market in any manner for a period of 5 years. It is

noteworthy that the said restraint has been imposed on the Noticees for indulging in

fraudulent and manipulative acts in violation of the PFUTP Regulations as has been found

in the present case. In my view, repeated fraudulent acts and delinquent behaviour of the

erring Noticees does not bode well for the integrity, orderly development and smooth

functioning of the securities market. It, therefore, becomes incumbent to deal with

contraventions, digression and demeanour of the erring Noticees sternly and

take appropriate actions for effective deterrence.

31. In view of the above and considering the repetitive nature of the default by the Noticees, I,

in order to protect the interest of investors and the integrity of the securities market, in

exercise of the powers conferred upon me under section 19 of the Securities andExchange Board of India Act, 1992 read with sections 11 and 11B thereof and regulation

11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair

Trade Practices Relating to Securities Market) Regulations, 2003 hereby restrain the

following entities from accessing the securities market and further prohibit them from

buying, selling or otherwise dealing in securities, directly or indirectly, or being associated

with the securities market in any manner, whatsoever, for the period as mentioned in the

table below:

Sl. No. Name of the Noticees PAN Period1. Mr. Bhavesh Pabari AKGPP8679N 6 Years

2. Mr. Bipin Jayant Thaker ABYPT4984H 6 Years

3. Mr. Prem Mohanlal Parikh ALHPP3489N 6 Years

4. Mr. Hemant Madhusudan Seth ANOPS8607E 6 Years

5. Ms. Mala Hemant Seth AZXPS0694J 6 Years

6. Mr. Ankit Sanchaniya BLNPS3316L 6 Years

7. Mr. Bharat Shantilal Thakkar AAZPT9542R 6 Years

32. The period of prohibition already undergone by the Noticees pursuant to the interim order


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__________________________________________________________________________ O d i th tt f LGS Gl b l Li it d P 19 f 19

dated February 02, 2011, shall be taken into account for the purpose of computing the

period of prohibition imposed in this order. Further, it is clarified that the

restraint/prohibition imposed on the Noticees hereinabove shall run concurrently with the

restraint/prohibition imposed by SEBI vide order dated May 13, 2015 in the matter of

dealings in the shares of Goldstone Technologies Limited .

33. This order shall come into force with immediate effect. A copy of this order shall be

served on all recognized stock exchanges and depositories to ensure that the direction

given in the above paragraph are complied with.

Sd/-

DATE: June 29th, 2015 RAJEEV KUMAR AGARWAL

PLACE: MUMBAI WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

Order in the matter of LGS Global Limited

Documents

Transcript of Order in the matter of LGS Global Limited